Advice on how much cash to hold in my situation

[Koolau]

Excellent question.

My Mom was a worrier, and one of the things she worried about was running out of money. She reused tea bags and saved rubber bands from the newspaper even when she and my Dad had more than "enough".

I get it. Both mom and dad lived through the depression. Mom "managed" (wore anklets to w*rk and changed into stockings when she arrived, for instance). Dad? Well dad rode in box cars and under passenger trains to look for w*rk. He lost part of a hand doing that! He also went hungry a lot as he sent all his money home to his widowed mom and his younger brothers and sisters.

You never get over that, I suppose and I'm sure I picked up some of it from dad and mom. (I couldn't feel comfortable if I didn't have a couple of months of food in the house). We're all products of our upbringing (no wright or wrong - just how we are).

 

[SecondCor521]

Misreading on my part?

Not really. The word "probably" in the second quote is perhaps doing some heavy lifting and may be read as too strong of a likelihood. I've never been in a situation like this before so I'm unsure of how it will turn out.

If I set aside that much cash and don't spend as much or as rapidly, that might bother me. It also might, and I'm realizing this now, feel like undue pressure to spend at a rate and in amounts that are higher / faster than I am comfortable doing. That's probably a big part of what's actually going on.

 

[surprising]

I am newly retired at 52 for almost 2 years now. I have $100K in savings account and the rest invested. I live off taxable brokerage account assets and rental income, and then at 59.5 will tap retirement accounts. I am around 2% WR.

My brokerage assets are about 70% high growth high risk individual stocks, and 30% stable value funds/stocks. No CDs, no bonds. It used to be 50/50 but the high growth stuff has exploded in the past year or so.

With your 1% WR you have the freedom to be high risk. If you were at 5-6% WR it would be a different story.

 

[deserat]

Correct. But that's already included in the 1% WR (*). If I didn't include it, I'd be at about 0.72% WR.

(*) It's actually 0.93% at the moment.

Hmm - you can add more to that cash bucket in my estimation - go get an ATP - multi rentals will really kill that bucket - hahahahahaha. I just finished getting my BFR (now called FR) just in the C172 and it cost me a bit - but then I'm about to really blow the dough on a long cross country in Australia in a C172 (Melbourne to Airlie Beach and back)....sooooo, with such a small percentage, but having pricey hobbies (my horse hobby friends talk about their expenditures - read about the car aficionados here - and then travel, especially if one pays for the lay flat seats!), to me cash is king - and TBH I have been hoarding cash for quite awhile as it minimizes any draw on the portfolio for the fun stuff....your frugal habits will not leave you, trust me. I am flabbergasted at what I am spending and it is not moving the needle much due to the cash buffers I've built over the years. Many disagree with me - that's fine...it's my money, not theirs ;-) It's my engineering background of the safety factor kicking in....buffers and plan b, c, d.....so far, so good.

 

[tulak]

You’re going to invest 86%. That’s not a small sum.

It sounds like you’re trying to optimize for the remaining 14%?

You could always reduce that amount. Or as NWBound said, what you’ve done before has got you to this point, so why change?

There’s really no wrong approach. When I have a decision like this, I tend to split the difference. If you think that maybe you won’t spend as much, only keep as much as you think you’ll spend in the next 6-12 months instead of trying to hit a target?

Another thought, look at how much this changes your overall portfolio allocation. I suspect very little, since it’s equivalent to one year expenses and you’re already at a low WR rate. In that case, you’re still significantly invested and holding some cash won’t matter.

Plus, pulling out my market timer glasses, markets have had significant gains over the last couple of years and are around record highs now. It could be a good time to hold cash.

 

[Al18]

My advice is the same, no matter your age. Have 5 years in cash. Typically 1 year in high yield savings or money market, with the rest in CD's.

 

[Mr_Pink]

My advice is the same, no matter your age. Have 5 years in cash. Typically 1 year in high yield savings or money market, with the rest in CD's.

Same as me. In taxable account I keep ~2 year in MM and ~2 add'l in TBUX and ~1 add'l in SGOV. All the rest is invested. This way I can skip looking at the market whenever I feel like it, which I consider a luxury I am fortunate to have.

 

[Koolau]

Not really. The word "probably" in the second quote is perhaps doing some heavy lifting and may be read as too strong of a likelihood. I've never been in a situation like this before so I'm unsure of how it will turn out.

If I set aside that much cash and don't spend as much or as rapidly, that might bother me. It also might, and I'm realizing this now, feel like undue pressure to spend at a rate and in amounts that are higher / faster than I am comfortable doing. That's probably a big part of what's actually going on.

I could see that. DW and I will be talking about "doing something" and one of us will say "Yeah, well, we've got the money in the checking account!" Heh, heh, sometimes we have to "trick" ourselves into not spending money. But, then again, we're finding that we have almost too much and it's looking like we haven't spent enough! SO, having the cash might be a GOOD thing for us!

 

[SecondCor521]

Thanks everyone.

I think I mentioned that my list is prioritized. There is also some variability in the amounts involved - some items are $500, some are a lot more.

What I decided to do is to set aside enough in cash to cover about the top 2/3 of the list, which also is about 2/3 of the $$$ involved. I'm confident I'll work my way through the spending process that much, and that will give me a nice balance between having the money available to encourage me to spend, but not so much pressure that I'll spend just to spend. I'll invest the other third and revisit at a later date.